With the economy bottoming out from one of the worst recessions our country has experienced, the consumer continues to watch their wallet more than usual as unemployment remains above 9%, consumer confidence is below 60 and banks continue to be overly conservative with their lending standards.

Tandy provides an opportunity to take advantage of two possibilities in the future: (1) a general economic rebound and a (2) successful turnaround. If neither play out, we have a backstop of Net Working Capital - assuming break even cash flow.

Company Background

Tandy is a leading designer and marketer of branded men's, women's and children's accessories (including belts, small leather goods, eyewear, neckwear, and sporting goods) and gifts. Merchandise is marketed under a broad portfolio of nationally recognized licensed and proprietary brand names, as well as private brands for major retail customers. They sell products through all major retail distribution channels throughout North America, including mass merchants, national chain stores, department stores, men's and women's specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores, and the retail exchange operations of the United States military.

The Company was incorporated in November 1990, but has been making men's and boy's accessories for more than 50 years. From 2001 to 2006, revenue grew from $195 million to $227 million, but expenses mounted as operating income dropped from $11 million to $4 million. The balance sheet has stayed fairly clean the past several years as the Company deleveraged from the beginning of the decade.

The numbers continued to worsen in 2008 and was followed by a proxy fight in October, where the CEO, Brit Jenkins, (who had been running the Company for more than 20 years and owner of more than 10% of the common stock) was replaced by Rod McGeachy. Rod comes from VF Jeanswear Americas were he served as vice president, strategy & business development since 2005. He primarily dealt with the Wrangler and Lee brands across North and South America. Prior to that he held positions at Russell Corporation, Accenture and Sara Lee Corporation. He holds a BS from UNC and an MBA from HBS. Tandy was fortunate to find someone with relationships with it's own current retail partners already.

Since taking the lead, the Company has decreased SKU's, increased operating margins, consolidated distribution facilities and begun manufacturing more overseas. Rod is on the right track to creating value for shareholders.

Valuation Summary

There are 6.9mm shares and the stock price is $3.60 for a market cap of $25mm. The company has cash on hand of $7.1mm and total debt of $7mm. Net Working Capital is $27 million and Tangible Book Value is $41 million. In the Nine Months Ended March 31, the Company produced $4.1 million in EBITDA and in the recent quarter was EBITDA breakeven (keep in mind the seasonality of the business) in comparison to negative $3.8 million in the prior year quarter.

The credit facility has recently been improved in terms on the $27 million and the Company has an NOL of $21 million expiring in 2029.

Outlook

Rod believes he will see 8 - 12% net sales growth for fiscal 2010, producing somewhere in the realm of $140 million. The Company recently changed product distribution to one location in December 2009 by moving corporate offices into the Dallas, Texas distribution facility, and expect an estimated $4 to $5 million in annual cost savings may be achieved.

Revenue

Wal-Mart accounted for 43% of sales, Kohl's accounted for 10%, and the top 10 customers accounted for 74% of 2009 sales. While concentration in one customer is not ideal, historically, retail concentration with Wal-Mart for many years has proven to be very profitable for manufacturers.

Private Brand Products are a solid source of revenues as contracts and product delivery has been decided upon on a contractual basis. Currently approximately 60% of their business is Private Branded, 20% is Licensed, and 20% is Proprietary brands.

Conclusion

Trading at low asset values, with a manageable amount of the debt, and strong potential for profitability in 2011, Tandy provides a good risk/reward ratio in the near future.

Risks

1) Financing Issues
2) Consumer Confidence Declines to Recession Levels
3) Lack of Execution